Valuation

Walk me through how we would value a REIT (Real Estate Investment Trust) and how it differs from a “normal” company.

Similar to energy, real estate is asset-intensive and a company’s value depends on how much cash flow specific properties generate. – You look at Price / FFO (Funds From Operations) and Price / AFFO (Adjusted Funds From Operations), which add back Depreciation and subtract gains on property sales; NAV (Net Asset Value) is also important. …

Walk me through how we would value a REIT (Real Estate Investment Trust) and how it differs from a “normal” company. Read More »

Walk me through how we might value an oil & gas company and how it’s different from a “standard” company.

You use the same methodologies, except: – You look at industry-specific multiples like P / MCFE and P / NAV in addition to the more standard ones. – You need to project the prices of commodities like oil and natural gas, and also the company’s reserves to determine its revenue and cash flows in future …

Walk me through how we might value an oil & gas company and how it’s different from a “standard” company. Read More »

I have one company with a 40% EBITDA margin trading at 8x EBITDA, and another company with a 10% EBITDA margin trading at 16x EBITDA. What’s the problem with comparing these two valuations directly?

There’s no “rule” that says this is wrong or not allowed, but it can be misleading to compare companies with dramatically different margins. Due to basic arithmetic, the 40% margin company will usually have a lower multiple – whether or not its actual value is lower. In this situation, we might consider screening based on …

I have one company with a 40% EBITDA margin trading at 8x EBITDA, and another company with a 10% EBITDA margin trading at 16x EBITDA. What’s the problem with comparing these two valuations directly? Read More »

How far back and forward do we usually go for public company comparable and precedent transaction multiples?

Usually you look at the TTM (Trailing Twelve Months) period for both sets, and then you look forward either 1 or 2 years. You’re more likely to look backward more than 1 year and go forward more than 2 years for public company comparables; for precedent transactions it’s odd to go forward more than 1 …

How far back and forward do we usually go for public company comparable and precedent transaction multiples? Read More »

I have a set of precedent transactions but I’m missing information like EBITDA for a lot of the companies – how can I find it if it’s not available via public sources?

1. Search online and see if you can find press releases or articles in the financial press with these numbers. 2. Failing that, look in equity research for the buyer around the time of the transaction and see if any of the analysts estimate the seller’s numbers. 3. Also look on online sources like Capital …

I have a set of precedent transactions but I’m missing information like EBITDA for a lot of the companies – how can I find it if it’s not available via public sources? Read More »

I have a set of public company comparables and need to get the projections from equity research. How do I select which report to use?

This varies by bank and group, but two common methods: 1. You pick the report with the most detailed information. 2. You pick the report with numbers in the middle of the range. Note that you do not pick reports based on which bank they’re coming from. So if you’re at Goldman Sachs, you would …

I have a set of public company comparables and need to get the projections from equity research. How do I select which report to use? Read More »